Selling farmland: What you need to know
February 28, 2020

Selling farmland: What you need to know

Farmers and farmland owners can opt to sell farmland for a variety of reasons. Some of the most common reasons are retirement, seeking to cash in on land that was purchased as an investment and the need to reduce financial strain by liquidating assets.

No matter the reason why you might be looking to sell your land, it’s not a decision that should be rushed. The land sales process involves many moving parts that are not always easy to track or entirely understand.

That’s why we have put together this brief guide of what you need to know if you are interested in selling farmland in today’s market.

The Iowa farmland market

Let’s start with a look at local land.

Iowa farmland is not changing hands very often. That’s according to the Iowa State University Extension and Outreach 2019 Farmland Value Survey. The survey asks more than 500 respondents in Iowa questions in order to get a read on how the farmland market is acting and how land values could be affected in the future.

As of November 1, 2019, the survey that the state average for farmland quality was $7,432 per acre. That’s up $168 per acre, or 2.3%, from that date in 2018.

The farmland market in Iowa is tight, though. Twenty-five percent of the respondents reporter lower sales in 2019 compared to 2018. Twenty-seven percent of respondents reported more sales than in the previous year, while 48% reported the same level of sales in 2019.

The survey authors state that farmland sales are in general correlated with land value changes. As such, recent downturn fears have caused those who own the land opt to hold onto it rather than sell. If farm incomes and profitability continues for some owners and producers, then there could be an uptick in land sales, according to the survey’s authors.

The survey results do note, however, that many professionals in the agriculture industry have noticed an increase in land auctions throughout Iowa in 2019.

Who is selling and buying farmland in Iowa

There were several categories that most sellers of Iowa farmland have fit into in 2019. Those categories are farmers, retired farmers, estate sales, investors and a general other category. Most of the sales were from estate sales at 52%, while retired farmers accounted for 24% of sales.

Sales from active farmers represented 16% among land transactions. Investors were responsible for only 7% of sales.

On the other end, buyers of farmland in 2019 were grouped by the survey into similar categories: existing local farmers, existing relocating farmers, new farmers, investors or other.

The clear majority of buyers, 72%, according to the survey, were existing farmers. Of those sales, 70% went to existing local farmers and just 2% of those transactions went to existing relocating farmers. Investors collected 21% of the sales reported in the survey, while new farmers represented 5% of sales and the rest, 2%, went to other buyers.

Why Iowa farmers are selling land

The ISU survey notes that there has been a “modest increase” in the farmland market here in Iowa. That increase is attributable to lower interest rates, strong demand for land and the fact that there is such a limited supply of land.

The market, according the survey’s authors, is stable. It likely will remain stable in the coming years.

As for whether sales will increase, that will depend, the authors state, on some of the economic pressures that farmers face, including trade issues and commodity prices. Some farmers may elect to sell land if this pressure increases too much.

This could lead to slightly more land being put up for sale.

Quality land does well at public auctions

Now that we have covered a few local matters, let’s talk more about the sales process.

When it comes to farmland, owners can choose to list the land at a specific price or put it up for sale at a public auction.

Public auctions often work out well when the farmland is of high quality. These auctions are marketed to get the most exposure possible for the land – and hopefully the highest price possible, too.

However, if you are under financial stress, an auction may shine too much light on that situation, possibly harming your chances of getting the sale price you want or need.

Contingencies in farmland sales

Sellers should go into the process knowledgeable of any contingencies they may be approached with when negotiating with buyers.

For example, some buyers may have certain circumstances that need to be met in order for a transaction to proceed or they may back out.

One example of a common contingency is that a buyer must be able to secure financing before a sale can go forward. A purchase agreement contingent on appraisal is another example.

Some farm real estate transactions involve easements

If you are looking at selling farmland but keeping a house or other agricultural building, then you will want to be familiar with easements. An easement may be required, for either the buyer or seller, depending on the situation, in order for access to be allowed.

As an example, say a seller wants to keep a house, but adjoining fields are accessed via that property’s driveway. In this scenario, the buyer will need an easement to utilize the driveway for access purposes.

Understand investors’ needs

Since investors are a common buyer of land, you have to know what exactly they might find attractive in the land you are attempting to sell. This often equates to large tracts of land that are connected, not broken up or divided.

Investors also will play it conservative, as they are most often solely interested in future returns on investment when they look at what land to buy.

But investors can be good transaction partners. They’re often helpful in securing a farm’s future financial security and stability. However, it’s vital to be transparent when negotiating with investors.

Get more information on selling farmland

We have barely even scratched the surface on all the current trends and issues that may affect a decision to sell farmland.

However, the more information you have, the better the process will go. That’s why it’s imperative that you find a professional you can speak to about the serious decision that is selling farmland.

Reach out to the team at Cotton Grave Farm Management for a complimentary consultation to discuss how to prepare for and get the most out of your potential farmland sale.

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